Students stuck with gargantuan loans for life are bound in a bank-dominated "improvement" of
indentured servitude.

Yesterday (
Risk is Necessary for Adaptation, Innovation and Success)
I discussed the inevitable failure of systems in which risk has been
transferred from those who reap the gain to others. In the case of student loans,
the risk has been transferred to students who enter decades of indentured servitude.

Indentured servitude has a long history in the U.S.; many immigrants accepted servitude
of between two and seven years in exchange for passage to the New World. Orphans were
indentured out of orphanages to the age of 21--potentially a much longer servitude.
Indeed, the labor of anyone on the public dole could be auctioned off:

By the time of the Revolutionary War, indentured servitude had been a common practice
in the United States for 150 years.

Following British laws established during the colonial period, post-Revolutionary public
authorities indentured the labor of those who were likely to fall upon the public dole.
Appalachian county governments bound out indigent adults and children whose families could
no longer care for them. The age, gender, and racial trends are clearly documented in early
records of Appalachian poor houses, for women and orphans represented more than two-thirds
of the individuals whose labor was auctioned off by county governments.

Isaac Miller of Anderson County, Tennessee, advertised in 1819 for the return of Margaret
Hutcheson who had been bound to him by the county poor house. Obviously, the
seventeen-year-old girl had tried the patience of her master, for he offered only
"a reward of 6 1/4 cents to the person who w[ould] deliver her to [him]," caustically adding,
"but I will not thank any person for doing so."

When an orphan was bound out by the county poor house, the child was legally tied to the
master until the age of eighteen or twenty-one.

Orphans were often bound to tradesmen or farmers until age 21, and indigent adults were
typically bound for three to seven years. However, there is no way to document how many
laborers were bound out by their own families. When parents indentured their own children,
it was for "a usual term of seven years if a girl, or five if a boy."

Lenders have little risk of losing money on the loans, unlike mortgages made during the real
estate bubble. Congress has given the lenders, the government included, broad collection
powers, far greater than those of mortgage or credit card lenders. The debt can't be shed
in bankruptcy.

The credit risk falls on young people who will start adult life deeper in debt, a burden
that could place a drag on the economy in the future.

"Students who borrow too much end up delaying life-cycle events such as buying a car,
buying a home, getting married (and) having children," says Mark Kantrowitz, publisher
of FinAid.org.

"It's going to create a generation of wage slavery," says Nick Pardini, a Villanova
University graduate student in finance who has warned on a blog for investors that student
loans are the next credit bubble — with borrowers, rather than lenders, as the losers.

The University of Phoenix, the nation's largest, got 88% of its revenue from federal
programs last year, most of it from student loans.

This is the perfection of indentured servitude. How many students pay off their $100,000
loans in a mere seven years? Modern banks and corporate "higher education" diploma
mills have improved the old system of indentured servitude, extending the servitude
from seven years to decades.

The key dynamic here is the transference of risk from the lenders, who stand to
reap immense profits from these loans, to the students. This transference is
enforced of course not by the banks but by their partner, the Savior State, which
obliterated the right to bankruptcy for students while guaranteeing profits to the banks
via Sallie Mae, another guarantor of private profits backstopped by taxpayers.

The feedback between risk and return has been severed. Lenders can extend
massive loans to marginal students attending for-profit colleges, knowing their losses
will be backstopped while the gains are theirs to keep, and the debt-serf students
are indentured for life.

Imagine if risk were connected to gain. Maybe lenders would be a bit more
careful about which students they deemed worthy credit risks; perhaps they would
begin differentiating between low-market-value liberal arts degrees from hard-science
degrees.

Maybe they'd start considering the students' incomes while in university. Maybe they'd
recognize differences in risk between for-profit diploma mills protected by the
rapacious, captured-by-corporations Savior State and state universities.

There can be no "fix" to our decline until risk is bound once again to return and gain. If risk
is transferred to others, you're left with some type of indentured servitude and
financial tyranny in service of the banks and their Savior State toadies.

"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

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